TERRA FIRMA

Daniel J. Terra's retirement as chief executive of Lawter International Inc. appears to be the end of an era.

It isn't.

True, the 84-year-old arts patron will relinquish his CEO title on Jan. 1 to John P. O'Mahoney, a 39-year-old Irishman who heads Lawter's fast-growing European operations. And yes, Mr. Terra's last heir apparent, Richard D. Nordman, 49, is leaving the company, saying, "The Lord was calling me to do something else."

But observers say Mr. Terra, who founded the Northbrook-based printing ink maker in 1940 and is staying on as chairman, continues to call the shots.

And when Mr. O'Mahoney (pronounced oh-MAHN-ee) relocates to the Chicago area from Lawter's European headquarters in Belgium, he and Mr. Terra will face a host of challenges.

Lawter's stock has languished for four years, and earnings have lagged this year on sluggish revenue growth and eroding margins.

Sales are expected to pick up when major plants in Wisconsin and Europe begin contributing next year. But the company also must decide what to do with the $50-million-plus, 29% stake it owns in Hach Co., a Colorado-based chemical company it has twice tried to acquire.

The upside is that Lawter's stock, trading at around $11 and carrying a generous dividend yield of 3.7%, is becoming attractive to investors betting the company will change its ways.

"At this price, the company is compelling for people with a medium-term outlook," says Timothy Gerdeman, a senior vice-president at Chicago's Everen Securities Inc. The management shuffle "has put (Lawter) back on people's radar screens."

Mr. Terra's stepping down was predictable. Mr. Nordman's wasn't.

"I would agree there are not many people who would make this decision," says President and Chief Operating Officer Mr. Nordman, who also is chairman of the Arlington Heights Evangelical Free Church, an unpaid position.

He insists he wasn't passed over for the CEO spot and that his departure signals no displeasure with Mr. Terra's management style. He will remain a board member and become a consultant next year.

But word of his resignation, which coincided with the Nov. 9 announcement of Mr. Terra's move, left observers wondering.

"From an investor's point of view, the timing left a bit to be desired," says David Leibowitz, a Burnham Securities analyst in New York.

Says Mr. Nordman: "It is purely coincidental."

Mr. Terra did not return phone calls.

If Mr. Terra is curtailing his involvement in Lawter, he still has plenty to do. An ambassador-at-large for cultural affairs in the Reagan administration (he was President Reagan's national finance chairman in the 1980 campaign), Mr. Terra also has endowed the Terra Museum of American Art on North Michigan Avenue and an American art museum in Giverny, France.

He's also chairman of Mercury Finance Co., a Northbrook-based consumer financing company spun off from First Illinois Corp. in 1989. Mr. Terra owns a 16% stake in that business, worth more than $250 million.

Through his charitable Terra Foundation for the Arts, Mr. Terra directs donations to non-profits. In August, the foundation announced a $22-million matching gift to the University of the Arts in Philadelphia, where Mr. Terra grew up.

Mr. Terra has plenty of money to give away. Forbes magazine pegs his net worth at about $790 million. While he and his family earn almost $6 million a year on their Lawter dividends-as of April they controlled about 14.4 million shares, or 32% of the company-Mr. Terra has drawn no salary or bonus for at least four years.

Even without a salary, Mr. Terra's role remains central, especially with Lawter's incoming youthful leadership. But given his other commitments, some question how much Mr. Terra can focus on Lawter.

Mr. Terra draws praise from some for his savvy art investing. "When he got into art, he chose a field that had been underappreciated for years," says Sara Lee Corp. Chairman and CEO John H. Bryan of Mr. Terra's concentration on 19th- and early-20th-century American art.

Adds Mr. Bryan, whose own corporate headquarters is graced by the works of Pissarro, Degas, Picasso, Monet and Leger: "He's been right. His judgment has been good."

Where the investment community questions Mr. Terra is his decision to hang onto Lawter's stake in Hach.

"It's difficult to justify," says Mr. Gerdeman of the stake Lawter acquired in an attempt to buy Hach.

"I think Dan has liked Hach from the very beginning," says Kathryn Hach-Darrow, 73, whose family owns 42% of the company's stock and who remains friendly with Mr. Terra. "Maybe it's the chemist in him."

Mr. Nordman defends the stake, noting that it's grown from an initial investment of $7 million.

In addition to Hach stock, Lawter also had $64.2 million in cash at the end of the third quarter.

Analysts expect Lawter eventually to make an acquisition.

"One supposes they have a wish list," says Mr. Leibowitz of Burnham Securities.

None of Mr. Terra's family members-his wife, a son and two stepchildren-is involved in upper management at the company. Analysts don't spend much time pondering whether the company might be sold or restructured, and the stock price indicates Wall Street doesn't believe a sale is imminent.

Lawter's gross margins dipped to less than 27% in this year's third quarter from more than 30% in the year-earlier period. Earnings in the third quarter dropped 6% from the year-earlier period to $7.2 million on sales of $51.0 million, a 4% increase.

Mr. O'Mahoney, who will become vice-chairman next year as well as CEO, didn't return phone calls. In addition to his promotion, John P. Jilek, 43, moves from vice-president of sales to president and chief operating officer. Peter Samuelson, 32, will replace Mr. O'Mahoney in Europe.